ASIA STOCKS: Mixed Flows Across Regional Markets

TYU5 is trading 111-12, up 0-05 from its close. 

• The US 2-year yield opens around 3.85%, down 0.03 from its close.
• The US 10-year yield opens around 4.322%, down 0.2 from its close.
• (Bloomberg) - US Treasuries are likely to be knocked off their podium as the best performing bonds in developed markets this year. Slower disinflation, swelling fiscal deficits, and a broader investor push toward diversification will hurt US debt relative to peers.
• (Bloomberg) - The Treasury’s willingness to fund more at the short-end of the yield curve will further compromise the Federal Reserve’s independence and increasingly leave monetary policy de facto in fiscal hands. The dollar will be a casualty, and the yield curve will steepen.
• “The world economy is about to get more clarity on trade deals as the US president's deadline for trade deals arrives on Wednesday, ending the 90-day reprieve from Trump's "reciprocal" levies.”(BBG)
• The 10-year yield has seen a  strong bounce in reaction to the better NFP print. This 4.35/40% area offers those who would like to express a long the opportunity to fade. A sustained close back above 4.40/4.45% area though would not be great for the bulls and would see more of the longs prepared back.

Japan May labor cash earnings were weaker than forecast. Headline nominal cash earnings rose 1.0%y/y, versus a 2.4% forecast. The prior April outcome was also revised down to a 2.0% rise (initially reported as a 2.3 % gain). In real terms, earnings were down -2.9%y/y, against a -1.7% forecast and prior -2.0% outcome. For nominal earnings this is weakest outcome since Mar 2024, while in real terms it is back to Sep 2023 lows. See the top panel of the chart below. It also widens the trend with last Friday's stronger real household spending outcome. 

• A slump in bonus payments, down -18.7%y/y, weighed on the headline results. Contracted and scheduled pay in y/y terms were little changed versus April levels. Bonus payments tend to be quite volatile (we were at +74.1%y/y in Feb), so there is scope for this to be less of a headwind in months ahead.
• On a same sample base, cash earnings were +2.3%y/y, below the 2.8% forecast and 2.6% prior outcome. Scheduled full time pay (on a same base) rose 2.4%y/y, also below market expectations (2.6% was the forecast and 2.5% printed in April). See the bottom panel of the chart below. These trends are more positive compared to the headline earning outcomes, but sit off 2024 highs.
• In this segment, special payments also fell 3.6%y/y, versus a +2% gain in April. Again, there is scope for this to be less of a headwind going forward.
• All in all, given the contribution of bonus payments to the headline fall it softens the negative message from today's print. The BoJ still have time on its hands to assess wages trends, with the near term bias likely to see rates left on hold. 

Fig 1: Japan Labor Earnings Slowed In May, As Bonus Payments Fell  

Source: Bloomberg Finance L.P/MNI 

In post-Tokyo trade, JGB futures closed slightly higher, +4 compared to settlement levels, with US tsys futures stronger. Cash US tsys were closed on Friday for the 4th of July holiday.

• Labor & Real Cash Earnings for May have printed at +1.0% y/y and -2.9% y/y respectively versus estimates of +2.4% and -1.7% and priors of +2.3% and -1.8%. This should give the market a boost.
• Bloomberg - "Japanese Prime Minister Shigeru Ishiba said the country is prepared for all possible tariff scenarios, speaking on Fuji TV's "Sunday News The Prime" program. Japan is ready to "stand firm" and defend its interests while anticipating every possible situation, says Ishiba."
• "We will be pushing for zero tariffs on automobiles," Ishiba adds. He notes that Japan is the largest investor in the US and the biggest job creator there."
• Bloomberg - "Japan's top negotiator Ryosei Akazawa held two phone meetings with Howard Lutnick to discuss tariffs ahead of this week's deadline."
• Today, the local calendar will also see Coincident/Leading Index data.